Monday, July 14, 2008

Relisting Revisited, Shareholder meeting

I have had enough messages and comments from DDE shareholders about the possibility of relisting DDE, that I think it requires a more formal investigation. You all know by now my stance on stock exchanges in SL - I am dubious, and I have clearly state my intention to never relist on another exchange a number of times.

However, the adage for any good business has to be "adapt or die". This is particularly true right now, in my opinion, for the land business in Second Life. The future is not as certain as it was, and it seems clear that Linden Labs' intention is to continue to reduce the price of purchasing land going forward. Whether or not this will spell the end of the "land baron" as we understand it remains to be seen.

So, I wanted to lay out the pros and cons of relisting, as I understand them. Then, I will hold a shareholder meeting, and elicit comments from shareholders here, in the company group, and through personal IM's to the major shareholders. In the end, I am willing to be swayed by the will of the majority. In effect, i will be taking a "vote", although no formal mechanism exists for me to do so - there are few enough shareholders that it can be done relatively painlessly. If more than 50% of outstanding shares (not including my own - I will abstain from the vote) want DDE to relist, then I will seriously consider it and do some serious research about which exchange to approach. So you know, my initial "gut feeling" is to go with the International Stock Exchange (ISE). Although it is small, it has a good track record, and seems to be run honorably.

First, it makes sense to provide a brief company valuation. Before the change in Linden Labs pricing, the Net Asset Value per Share for DDE was between 3L and 4L per share, depending on land prices. Under the current LL pricing model, the NAVPS is more on the order of 1.5L - 2L per share, with a liquidation value considerable lower. And there is an ongoing debate as to whether or not land can even be considered an asset. If not, then DDE in fact has very few assets at all.

However, the profit model is strong. Revenues are in the 3,000,000L per month range, with costs about $2,400,000, yielding profits of about $600k per month, or about 0.13L per share per month. Dividends have typically been (and will continue to be after September) at least 0.1L per share per month - so the annual yield on shares from dividends alone is about 30%-40% on a share price of 3L per share.

The Pros
I think Vitall beck has outlined the main potential benefits of relisting:
1. The market determines share price: philosophically - I think this is best. The current plan is set, and while it provides a good return for investors, it does not take into account the effect of any factors which change the value of DDE, for better or for worse. A free market would allow the investors to determine the price of DDE shares, based on the best available information, without the heavy hand of Big Brother (or Big Sister in my case) steering the ship so directly. Now, it has to be recognized that this is a double-edged sword - it may mean higher prices for the stock (which is good for existing shareholders), but it may also mean lower prices, especially if the land business becomes more difficult.

2. Liquidity: if DDE relists, shareholders can buy and sell stocks as they wish. This would both allow new investors to buy in, and allow current shareholders to sell their shares when they wish at market prices. Under the current system, I don't really have the ability to allow shareholders to sell off - i simply don't have the time or infrastructure to become a trading platform.

3. No mandatory buybacks. At this point, I have put in place what i consider a fair plan for buybacks over the next year or so at established prices - which is not optional. If DDE relisted, these would obviously cease - shareholders would not be required to sell me any shares, and buybacks could be done at market value with whatever cash was available (starting in September). This would serve to help keep the share price reasonable. If investors know that I will be buying back shares every month, the share price would be more stable.

The Cons
1. Higher risk. Under the current plan, investors know pretty much exactly what they are going to get. over the next year or more, their shares will be bought back at preset, increasing prices which will offer a decent profit for most shareholders. If DDE relists, there is no way to know whether the price will rise or drop.

2. Lack of liquidity and consistency in the exchanges. The stock exchanges in SL are all suffering from a lack of liquidity, which makes it difficult for investors to get good value for large investments. Although DDE has been successful in the past at attracting investors, there is no certainty that this will continue. And more fundamentally, the share price of companies on the exchanges seems at times almost random - many companies are either radically undervalued or overvalued based on their published financials, and at times there seem no rhyme or reason to it. Prices are subject to "gaming" by a relatively small number of investors under some circumstances.

3. Guilt by association. this is a bit more nebulous, but as you all know by now, I am not happy with the lack of regulation on the exchanges, and have been appalled at the actions of many of the exchange operators and CEO's running companies on them. By listing DDE on any of them, I am essentially buying into at least one exchange's behaviour and am aligning myself at least to some degree with the exchange and the companies on it. I have a fierce sense of loyalty when i get involved in something, and would feel honor bound to support the exchange as much as my own ethics would permit. It was in the end a conflict between my loyalty and my ethics that led me to delist from the WSE in the first place.

So - there you have it. I would be interested in your thoughts on the matter, and will actively pursue them. Comments on the blog would be helpful, so that everyone can see your thoughts, but I will also post to the group, and will contact the top 20 or so investors personally to solicit feedback. In addition, i will hold a shareholder meeting in the near future (thinking next Saturday at 3pm SL time at this point).

Please note - I am making no promises one way or the other, but I need to know what the will of my investors is so that I can make my decisions in their best interests - so please provide me with some feedback. And if you do comment on the blog, please identify yourself - an anonymous comment is the same as no comment at all...



Anonymous said...


I like the idea to be listed again in an Exchange. At the present moment, I would consider only two of them: SLCapex and ISE of which I have for both some interests as well.

However, right now, ISE, even though is quite small, has the best track record of performance, stability, and capacity to face potential crisis. Cocky did a great job in the past year without any major problem.

Also, ISE has a “unique” advantage vs. all other exchanges.

Shareholders may propose and vote for changes and improvements.

This tool could be incredible powerful to aim to create an “elite” and profitable exchange which ultimately can benefit all of us.

eliale morigi

William said...

I like the idea of relisting. You had one of the best stocks on the WSE.

William Rustamova

Erik Goff said...

I vote for relisting. You should have a large part of the shares in your own portfolio though.

Anonymous said...

In my opinion Del you should relist.The price of the DDE share
has to be decided by traders in a free marketplace.Besides that,all the administrative work you have to do now goes to the organisation of that stockmarket.Your difficult decision now is to decide where to relist.The debacle of the wse
doesn't make this decision an easy
one.But considering your record I trust you'll make the right choice.

Richy Brynner

Elanthius Flagstaff said...

I don't get it. Why would anyone list on an exchange? Apart from the initial influx of cash which is clearly beneficial there are no further benefits to you the owner of the company. Of course now you've listed and a bunch of people have shares outstanding that they want to play Virtual Stock Market with. So they're going to be pissed if you stay delisted.

If I was in your position I would feel that the most fair thing to do would be to relist on some exchange to allow the stock to float but then immediately begin an aggressive buyback policy to get yourself out from under the extra cost of paying dividends and publishing your financial details.

The most reasonable move would be to just stay unlisted, pretend share prices are static forever and try to buy them back as and when you have spare cash. This will of course be cheaper for you.

The craziest move would be to relist, maybe issue more shares and keep paying dividends and have to deal with the extra hassle of dealing with shareholders.

Splinkrot Writer said...

I only had 13 measly shares, so they were bought back quite a while ago (thanks!!) So I would love the opportunity to buy in again.

Having said that tho, I'm not sure where you would relist and actually get some rallying prices. We all know that day traders can make the market due to the lack of liquidity, which only benefits them if they short the stocks. This causes the profit they make to come from the decline in the share price which in turn hurts all the securities on the exchange.

I know, I'm waffling a little, but until we have a solid player (WSE was the closest thing to this we had at the time..) with some reasonably stable liquidity, there is nowhere to relist safely.

Good points from those above that it is "unfair" to not let the market decide, but I don't think any of the current markets are anywhere near as "fair" as DD is herself.


Anonymous said...

Can Splinkrot Writer explain how traders in sl are able to short the stocks to influence the market.
Really I wished I could have done that in the passed since there where many stocks of listed companies with no future at all.

Richy Brynner

Logansan Oh said...

Im against relisting as I am a major shareholder, and thus far in SL markets, those of us in LONG positions are the ones that stand to lose the most. DD's plan for investors so far has been the strongest seen in SL finance history and I fear this will be the first of several quick nails in the coffin.

Sorry I couldnt make the shareholder meeting, lets hope Im not too late.

Logansan Oh